In a decision with broad implications for victims of January’s wildfires, the state’s home insurer of last is on the hook to pay for smoke damage claims, according to a court ruling issued this week.

The California FAIR Plan said it would likely not appeal the Tuesday ruling.

The ruling from Los Angeles Superior Court Judge Stuart Rice said the FAIR Plan violated state law in how it treats all smoke damage claims. Rice wrote that “evidence might exist” to show that the plaintiff was underpaid for his smoke damage claim, but that the “unlawful language” used by the FAIR Plan made it difficult to assess — a common complaint made by others looking for remediation help.

The FAIR Plan in a statement issued to Southern California News Group on Wednesday, June 25 said the statewide carrier’s “burn damage and smoke damage claims” are now being handled consistent with California law.

California Department of Insurance spokesman Michael Soller said that “full and fair payment of wildfire claims to consumers is a top priority.”

He said the CDI, which regulates the FAIR Plan, is investigating how the insurance provider is handling smoke damage claims. “The department aims to resolve consumers’ complaints and help get people back on their feet as they recover their lives. This ruling strongly supports our ongoing efforts,” Soller said in the statement.

The state agency uses multiple tools to enforce compliance with state law, including letters, bulletins and market conduct exams. In May, a letter was sent to the FAIR Plan with background on the agency’s enforcement record, making two demands of FAIR:

• Amend its dwelling policy and “investigate claims fairly.”
• Investigate claims in a “reasonable manner.”

The Tuesday ruling, which buttresses the CDI’s enforcement demands, stems from a lawsuit filed by a Lake Tahoe resident in 2021 in which plaintiff Jay Aliff, who was denied a smoke damage claim, said his riverfront cabin south of the lake was damaged by the 2020 Mountain View fire. That fire destroyed 80 homes and claimed one life.

“At a basic level, the FAIR Plan has been denying and underpaying wildfire claims since 2012, somewhere between 5,000 and 10,000 claims, if you include the L.A. fires,” said Oakland lawyer Dylan Schaffer, the attorney representing Aliff in the lawsuit against the FAIR Plan.

“This means that the FAIR plan must come into the light, and act as all other carriers do to insure people from damage caused by wildfires, including not just thermal damage, but also contamination damage — which people call smoke damage,” said Schaffer in an interview. “This is a game changer.”

Also see: State Farm under investigation for handling of Eaton, Palisades wildfire claims

FAIR, which stands for the Fair Access to Insurance Requirements, is an insurance pool paid for by carriers in California that provide basic property fire insurance to homeowners and businesses unable to obtain coverage from traditional insurance companies. In March, residential enrollment reached 556,000, more than double the quarter-million covered by the plan four years ago.

FAIR Plan spokesman Hilary McLean wrote in the statement to SCNG that the FAIR Plan is continuing to review the decision.

“As the FAIR Plan is in the process of updating its policy language to reflect the manner in which claims have been adjusted since last year, it is unlikely to pursue an appeal,” she said. “The FAIR Plan’s coverage of smoke damage is fully consistent with its coverage of burn damage. Both require direct physical loss.”

She also said that the FAIR Plan eliminated the use of the “‘sight and smell’” test last year, and has “never enforced the smoke dispute resolution provision.”

Since last year, McLean said FAIR has been “working collaboratively” with the California Department of Insurance to update and clarify the FAIR Plan’s policy language around smoke damage, so it’s consistent with the manner in which these claims are being adjusted.

“Our goal is to continue providing fair and reasonable coverage for wildfire-related losses while maintaining the financial integrity of the FAIR Plan for all policyholders.”

The January wildfires in Los Angeles County killed at least 30 people, destroyed more than 13,000 homes in the coastal community of Pacific Palisades and inland Altadena, and burned more than 37,469 acres in the burn areas. There were many other fires this winter that damaged property and scorched land throughout Inland Empire communities, according to the California Department of Forestry and Fire Protection.

The FAIR Plan’s handling of smoke-damage claims has angered homeowners who weren’t offered industrial hygienic testing for toxic substances and professional cleaning services.

“They’ve been taking the position since 2012 that these houses with smoke damage are dirty, and that people should clean them themselves, which is dangerous and malicious because it puts the health and safety of their customers at risk,” Schaffer said. “The FAIR Plan has held an illegal view of how they view the scope of damage. The Department of Insurance told them in 2022 that their policies are illegal, and to stop doing this. The dirty secret is that it just saves the carriers millions of dollars by not paying smoke damage claims.”

In 2022, the CDI published a “targeted market conduct examination” addressing smoke damage claims related to wildfires and the FAIR Plan in order to ensure the insurance plan properly investigated and paid for smoke damage claims.

Last month, state Insurance Commissioner Ricardo Lara’s office approved a 17% emergency rate hike for State Farm. The new rates took effect June 1 with renters and condo owners seeing a 15% increase and rental dwelling owners a 38% increase.

Insurance claims have been part of the debris removal process, specifically for business owners who are not automatically eligible to be included in the U.S. Army Corps of Engineers debris removal mission.

The Army Corps said businesses should work through their insurance company first to cover debris clearance. If a business can’t handle it on their own, they can request inclusion through Los Angeles County based on multiple factors including insurance coverage or status of a claim.

The Department has grown concerned with the handling of smoke damage claims by State Farm and other providers. Last month, Lara announced the launch of a Smoke Claims & Remediation Task Force.